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Investment guidance is going down at this time and it’s certainly a reflection of slower economic growth at home and abroad. While China still remains a powerhouse emerging market, its monetary policy to slow down the economy is working. Investment guidance from domestic corporations that have reported so far in this third-quarter earnings season is mirroring what Wall Street has been doing—revising 2012 earnings guidance a little bit lower.

While the current state of things remains very fragile, the stock market hasn’t broken down. The main stock market averages have experienced a meaningful correction and they are trading range-bound. You can see this quite easily in the S&P 500 Index, but also the Dow Jones Transportation Index, which remains one of the key indicators for the broader market. It’s very difficult for the rest of the stock market to advance without transportation stocks leading the way (see The Age of Austerity Is Going to Take a Lot Longer to Play Out). Railroad stocks in particular have been hit hard; but, as a group, they are consolidating with the Dow Transports around the 4,400 level. The fact that this important index is now churning is a positive sign in this environment.

So, with investment guidance from corporations becoming more tempered, upside in the stock market will mostly be due to its reasonable valuation and changes to investor sentiment. The debt crisis in Europe must be abated before any meaningful new upside trend can develop in the stocks. I just don’t see any way around this big issue.

I believe that we’re in a sea of mediocrity that will last the rest of this year. I see no reason why the stock market can’t advance sometime this fourth quarter, but anything is possible when you have the potential for sovereign debt defaults and currency instability.

I have to say that it would be nice to get all this trouble in Europe over with so the countries over there could change the way they do things and restructure, and global financial markets could move forward. Lots of world leaders are now echoing the same thing. The debt crisis just can’t keep going on forever. It’s time for overleveraged countries to take the pain and get on with things so investor confidence can be restored.

The oil market and the spot price of gold seem stuck in a price rut, caught between the issues in Europe and the prospects for the economy in the U.S. and, to a lesser extent, China. We’re in a wave of capital market consolidation that has yet to see any light at the end of the tunnel. Accordingly, there’s no cause to take any new, bold action in this environment. Investment guidance is going down. The only good news is that this is almost fully priced into current share prices.

The market panic is rising, as there is more speculation of another recession in Europe and perhaps in the U.S. Stocks plummeted over four percent on Thursday morning.

The current market bias is negative and my concern is that failure to edge higher could drive the index back lower or stall the trading.

Without leadership, markets are likely to stall or move lower to bear market status.

Should this happen, my investment guidance is to write some covered call options on some of your key long-term core holdings to generate premium income and reduce the average cost base of your positions. By doing this, the premium income added to dividend stocks could effectively increase the yield you can make from some of your dividend stocks.

However, be careful, as a market rally could take out your position at the call strike price, albeit the near term does not look promising given the death cross.

Make sure you are comfortable with the upper strike price of your covered call. Make sure it’s above the key resistance of the stock.

I have long favored the use of writing some covered call options on long positions should the market trade flat or down and when you want to hold stocks. This may be the case now.

Why let your positions sit idle? Write some covered calls to generate some premium income, increase your yield, and reduce your average cost base. It is simple to initiate. Just make sure you do not write a naked call (not holding the underlying stock); otherwise you’d be exposed to unnecessary risk and potentially extreme losses.

Let’s take a look at Cisco Systems, Inc. (NASDAQ/CSCO) and assume you own 100 shares at a cost base of $14.00 per share. You are already up $1.13 a share based on the current market price of $15.13 as of August 18.

Now say you continue to be long-term positive on Cisco, but at the same time feel that the stock may pause or move lower over the next quarter.

There are several strategies at your disposal. You can sit on the position and wait for the stock to rise. The problem is that this is an inefficient use of capital, in my view.

So why not make your capital work for you?

It’s much easier than you think and represents a win-win situation. The process involves writing covered calls on your holding of 100 shares of Cisco. For every board lot (100 shares) of Cisco, for example, one call option may be written.

If you think Cisco is dead money for the next several months, you can write an out-of-the-money November $18.00 covered call for premiums of $81.00 per contract, or $0.81 per share. If Cisco does not break above $18.00 by November 18, 2011, you keep the $0.81, which is a return of over five percent based on the prevailing $15.13 stock price.

Covered call writing is straightforward, low-risk, and a generator of premium income, as well as guaranteeing a selling price for the stock. Don’t write a covered call if you do not wish to lose the stock due to a possible exercise from the call holder.

So, if stocks stall, make some money and write some covered calls.

Stocks plummeted over three percent at the open on Thursday, as the selling capitulation held despite several up days due largely to the oversold technical condition.

My investment guidance is to stay on the sidelines and wait for a base to form before entering into new positions. High frequency trading, specifically on the short side, could make the selling worse, as we have seen in the past. The stock market is dangerous.

Driving the bearish sentiment is increased concern towards the slower growth and debt issues in Europe, along with weak jobs and inflation data domestically.

The worrying about Germany’s sluggish growth is conjuring up fears of another potential recession if the top country cannot reverse the situation. France is also slowing. There are also concerns that the major European banks with exposure to bad debts around the weaker European countries will be in trouble, which could trigger a financial crisis.

Morgan Stanley cut its global GDP forecast for 2011 and 2012 and added that the U.S. and the eurozone were “dangerously close to a recession.” Not exactly an endorsement. This tells me that the S&P downgrade of U.S. credit may have been the correct call.

And making matters worse was a jump in the headline Consumer Price Index (CPI) to 0.5% in July, above the 0.2% estimate and the 0.2% decline in June. Excluding food and energy, the core CPI was in line at 0.2%. This, along with a rise in the Producer Price Index (PPI), is worrisome.

The current sentiment does not look positive. In this country, we have the massive debt, the credit downgrade, stalling growth, high unemployment, and weak housing.

The charts continue to be negative, with a bearish death cross. Oil is also showing this. The near term is ominous. Be careful, as there is a lack of confidence in buying.

The near-term technical view remains BEARISH, as the key indices trade well below their respective 50-day moving average (MA) and 20-day MA on relatively weak Relative Strength.

The NASDAQ, S&P 500, and Russell 2000 continue to display a bearish death cross on their respective charts, an indication of potentially additional losses.

The downside risk remains extremely high and bearish.

I continue to sense that gains will not be sustainable. Until there is firm buying support and a base formation on the charts, it may be worthwhile to buy after a big dip and sell on a bounce. In other words, trade the current volatility.

The best call at this time continues to be gold. The October Gold broke $1,800 to a record $1,819 on Thursday morning. The chart looks bullish on strong Relative Strength. There is a golden cross on the chart, with the 50-day MA of $1,591 well above the 200-day MA of $1,467. I feel that gold prices will continue to edge higher, especially if the U.S. economy falters and another recession surfaces.

The best strategy for risk-averse traders is to protect via put options.

Again, you may want to be careful when buying on the current weakness. To be safe, stay on the sidelines.